Monday, May 2, 2011

Election Fever is Here

What an informed voter should really know

by Fish Koh Jie Yu on Sunday, 01 May 2011 at 13:39

I'm writing this note because I'm about to "disengage". I feel that as a political science student, I should address a few misconceptions about politics made by both incumbant and opposition supporters. So here it goes:

1. Oppositions are not called opposition because they opposed to everything the incumbant proposed. Opposition is a classification for political parties that do not hold power within the parliament. In Chinese, oppositions should actually be called 在野党, instead of 反对党.

2. Do not confused the government with the ruling party/incumbant. The government constitute both the executive branch, civil servants, national boards, ministries, etc. Voters are voting for a parliamentary representative. The parliament is the legistlative branch of the government. The ruling political party is a SUBSET of the government. In Chinese, they are called 执政党 and not 政府.

3. Building on point 2, it's not rational to claim that the Singapore government will collapse should a political party fail. This is a big discredit to our civil service. But on the other hand, because the ruling party has control of the parliament, it's leadership failure will have repercussions on Singapore. The nuances here is the extent. To suggest that Singapore will go straight back to third world is absurd. If I am to put it simply, a strong executive (civil service) but a weak legislative (parliament) means that we have weak(non encompassing) policies. A weak executive but a strong legislative means that we have weak(corruption, poor execution etc) policies too.

4. On the point of civil service. The institutions and civil servants are supposed to be non partisan (do not take sides). The basis of civil service is to serve the people and not any political party interest. There is absolutely nothing wrong for a civil servant to vote for or against the incumbant. It's a matter of personal choice. They are citizens first. The non partisan nature of the civil service is also the reason why civil servants that want to be part of the legislative branch needs to resign from the service. It's imperative that the civil servants need to be non partisan because if they are not, they have failed in their duties towards the people they are supposed to serve. Afterall, the civil service exist for the people, not for any political parties.

5. It's naive of anyone to think that politics is fair. Politics is NEVER fair. Every political party seeks to protect its own interests for survival. Perhaps, thinking of political parties as companies within an industry. Each of them will try their best to gain a bigger market share. Some may try to tweak the rules of engagement, some may try guerilla marketing etc. But at the end of the day, they are always looking to ensure their own survival. We as consumers should be aware that when a company is selling their products, they will use whatever trick they have up their sleeves to convince you that they are better than their competitors ( read promises, fear mongering, gunslinging etc). What we as consumers can do, is to assess these products and decide for ourselves, which is better.

6. Because every political party(company) seeks to protect their own interest, sometimes the country (industry) will suffer. Think of it as the tragedy of the commons. In their attempts to fight for a foothold/obtain a bigger market share, the tactics they used may often result in the country or elements within the country to be worse off. Politics is dirty. We the consumers are often at the losing end. Time to time, we will suffer from poor services and empty promises. Parties tell you to examine their track records and if you scrutinize, you will find many examples where these parties have compromised the country/elements within the country interest to benefit the party's interest. This is where the consumer needs to take a stand. They need to make a judgement on what's enough. On whether political parties have in their opinion compromised the common good for their party's good. Let's give an analogy. Microsoft had been offering the best product (windows) by sabotaging competitors' products, forcing merchants to only carry their products and buying over new start ups. While the product is good, we have to ask ourselves if the consumers are shortchanged by Microsoft's monopolic tactics. Could the industry be better off, if we have alternative system developed by Apple for example?

7. Point 6 leads me to switching cost. Many people had been arguing that if there are opposition voices in parliament, there will be gridlock, inefficiency and potliticking etc. Borrowing the same analogy from above, there are obviously switching cost. The familarity of mac users with windows and windows user with mac is the obvious switching cost one needs to consider when we choose which operating system we want to use. (or we can use linux). However, what most people got it wrong is the cost of switching. In a parliamentary system, you only need a majority 50% of the votes to pass through most legislative bills. To put it simply, as long as one party after 8th of May, have 44 seats out of the 87 seats; Provided that they are all vote yeh to the bill, bills will pass through. The only bills that cannot pass through with a simple majority are constitutional amendments. That requires 75% of the votes. Constitution is a big word and perhaps many people are not familiar with it. So let me use the company example again. The board of directors can pass "bills" to inform the CEO to make strategic decisions for the company. However, if the board of directors want to make drastic changes such as increasing the number of board members, increasing the pay for board members etc, then they have to gather more than just a simple majority. To summarize, fears of gridlocks, government lockdown or whatever are highly unlikely in the Singapore political landscape.

8. This leads me to the talk about efficiency. Please do not confuse efficiency with effectiveness. We as consumers, citizens of Singapore, ideally, we want both efficiency and effectiveness. However, the the most efficient policy may not be the most effective. The most effective policy may not be the most efficient. I will give you an example. Smoking. If we want to make Singapore smoke-free in the shortest possible time (efficient), we can ban cigarettes. However, this is not likely to be effective because a black-market will arise and the interest of the smokers are being ignored. A more effective policy will be education to discourage non smokers from picking it up and to encourage smokers to quit. However, that's definitely not the most efficient policy. Kind of reminds me of the ethics question, "If you can enslave 5% of the population and increase the welfare of remaining 95% by 100%, will you do that?" It's your own preference, but personally I do prefer to have an effective policy that encompasses all than to have a more efficient policy that get things done quickly but neglect others interest.

9. Talking about interest. Here's what I urged all voters. Do not blame, label others etc. Everyone is voting based on their interest. Their interest maybe greater than themselves but ultimately they are voting on what they are comfortable with. Humans are diverse, some people will choose to buy a product from company A because company A is offering a good product even though they know that the product is coming at the expense of other people. Others have their own moral stand such as refusing to eat shark fin because of the cruelty involved in harvesting it. Like I always say to all, if you can sleep soundly knowing the consequences of what you chose, it's a good decision. To put it more explicitly, think of yourself as a manager deciding whether you should outsource your factory. You know that outsourcing jobs will increase savings and your own profit but will put the workers with you out of a job.There are many solutions to the problem and the decision you make should be one that you can live with it. It's your own moral standing. For my non religious friends, only your conscience can decide. For my religious friends, God will judge if you have live a virtuous life. Not me, not you or any other human being.

10. Last but not least, past performance is not a good indicator of future performance. Using the same analogy. Windows 95 was good. Windows 98 was good too. Windows XP was good. So based on past performance, we can expect Vista to be great? Well I think some will beg to differ. If Windows Vista was F uped, it doesn't mean than Windows 7 will be F uped too. Saying that PAP had been good so they will continue to be good is a fallacy. Likewise, saying that WP had pushed out good candidates like Sylvia Lim in the last election hence Chen Show Mao will be good too is a fallacy. What past performance can provide is a hint to how the new "products" will be. Our experience should be limited to that particular product and not the company. Microsoft is not great just because Windows 95, 98, XP, 7 are good products, neither is Microsoft shitty just because Vista is F-uped. Some ministers in their previous terms have not done so well. It's up to you whether you want to stick with Vista or change to Mac. Of course, things are not so easy. Microsoft in it's self interest will try to protect its marketshare. So they bundled the excellent Office Package like Excel, Words, with their Vista OS. For some other markets, they bundled Windows 7 with inferior stuff like notepad, paint, pictureviewer, and movie maker. If only I can choose exactly what products I want. Alas, the companies will never let me do that and I have to make a decision that I can live with. To choose Mac by punishing Microsoft monopolistic behavior and deal with the switching cost of readapting to a new OS. Or to choose Microsoft and affirm that their product is indeed good and I'm willing to overlook the risk of only knowing how to use one OS.

Note: My PolScience friends, if I made any mistakes here and there, please point it out, if I do k. :)

End

While Election Fever is happening in my country, I am posting my result for Stats Arb trade.

Posting my Stats Arb results is a way to keep my passion going even if I will/might never land a career in that line. :(

So to keep in line with what is happening around me, I decided to post this, re-posted from Face Book by a political science student. It does not matter whether she/he is right or wrong, I feel her post is logical enough for me to share.

I am no advocate for true democracy. It never works 100% and never will? True democracy requires informed voters, will we ever have information that are truthful enough in our media? I doubt so.

Results

These are the following Pairs used during a 7 weeks period.

Note that due to capital constraints, I cannot run all at once. I might miss some winning/losing trades.

EURUSD-EURGBP
EURUSD-EURCAD
EURCHF-USDCHF

Initial = 1950 SGD
Return = $365.06 SGD
Sharpe Ratio = 3.87 (based on 90-day T-bill at 7%, is it correct, someone please help here, Sharpe = (365.06- (0.07*1950) / 59.04 ))

From my analysis of my trades, looks like most of the losing trades are due to Short EURUSD and Long the other side. However I cannot find a way to quantify not to take such trades. Till then.

Saturday, March 19, 2011

Cointegration or Correlation

Does Cointegration works for short term? After several backtests, it seems correlation works better in the shorter time frame.

Testing for Cointegration

Timeframe used: 5 mins bar chart (Over 2 months)
Steps:
1. Check for stochastic trend in the time series. Meaning, I(1) is stationary (TS is stationary after 1st differencing
2. Regress the 2 Time series, do a ACF test on the residuals.
3. A small P-Value => "Cointegration" (For hardcore stats people, "Do not accept Null Hypothesis"

Friday, March 11, 2011

I have decided to "not waste" what I learnt in school. Although she didnt teach me anything on almost anything about application, the theory is just good enough not to get lost while learning applications from somewhere.

So what "not to waste"? Time Series of course, one of my favourite module but with the worst result. (excl. French One) "Parlez Vous Anglais?"

Let's venture into the world of "Stationarity" and "Cointegration" and what not in the FX Markets.

They called it StatArb???

Stationarity - A stationary process (or strict(ly) stationary process) is a stochastic process whose joint probability distribution does not change when shifted in time or space. *

Cointegration - If two or more series are individually integrated (in the time series sense) but some linear combination of them has a lower order of integration, then the series are said to be cointegrated. *

*Source: Wikipedia ( I know it is not a good source, but I am not writing a thesis)